If you are an active investor, you are probably aware of the amount of real estate crowdfunding options you have.
And if you are new to the space, it’s an exciting discovery as you can get active in real estate without a ton of upfront costs and management headaches.
That said, another real estate disruptor in the crowdfunding space is Groundfloor. You may or may not have heard of this platform, but they are doing some interesting things in the real estate space as well.
Below is my Groundfloor review as well as more about the platform.
Quick Review: In short, I RECOMMEND Groundfloor. It is a simple real estate investing platform that you can get started with just $10, and I give it a 8/10 score. You can sign-up here to get started.
Table of Contents
What is Groundfloor?
By far the lowest minimum real estate investing platform is Groundfloor. Any investor can get started with just a minimum of $10!
Of course, don’t expect to build wealth and make a massive amount of money on a $10 investment.
But, this always gives new investors a chance to get familiar without the platform works, continue learning, and not risk a significant amount of money.
Groundfloor is currently the only investment platform that offers high-yield, short-term real estate investments to the general public.
The majority of the current real estate investments are single-family homes, duplexes, and occasionally you might see apartments or condos.
Since funding the first Groundfloor loan in 2014, thousands of individuals have built their own portfolios of loans ranging in yields from 5% to 23%, on terms of 6 to 12 months, with a minimum investment of just $10 per loan.
The company was the first platform working with the SEC in August 2015 to sell private real estate debt investments to non-accredited investors.
Initially, these real estate loans were only open to select states, but has since expanded to any state.
Groundfloor is also for borrowers too, who might be looking for short-term financing for their real estate projects. The borrowers get access to more flexible, faster and cheaper capital than a traditional bank or any money lender.
Groundfloor Real Estate Loans
Unlike some of the other real estate crowdfunding sites, Groundfloor is not focusing on huge commercial real estate properties.
Instead, when you have an account, you’ll get a list of potential investments you can choose, with returns from 6-14% and a different grade for each investment.
Typically their loan grades are A-F and some occasional G’s that can be over 20% returns. However, the higher the returns on any of those investments, the greater the risk.
So as you are investing with Groundfloor, it will be good to diversify across a range of investments.
It all starts with the borrower looking for a loan to finance a real estate rehab or renovation project. Groundfloor reviews the details and conducts the due diligence on the deal and the borrower.
If Groundfloor decides to underwrite the loan, it is then assigned a loan Grade A through G and a potential rate of return. You as the individual investor can choose to invest in the series of loan grades that interest you.
Grade A loans are the least risky, but have a lower rate of return for you. Whereas the lowest level, Grade G loans are the most risky and have the highest rate of return.
So how does Groundfloor determine the grade and assign a rate?
There are a few factors that includes the location, lien position, borrower commitment, skin-in-the-game and others.
The final rate is adjusted around factors like loan size, loan term, personal guarantee, history with Groundfloor, credit worthiness and other factors.
Here are the loan grades and potential returns for each (they may vary, but generally this give you a big picture):
- Grade A: 6%
- Grade B: 8%
- Grade C: 11%
- Grade D: 14%
- Grade E: 18%
- Grade F: 21%
- Grade G: 25%
Once a loan is fully funded, the borrower draws money according to an approved schedule and completes the renovation or rehab project. The property is then listed, sells and eventually closes.
After closing, the borrower repays Groundfloor, and a lump sum of interest earned is deposited into the account of all investors who participated.
Groundfloor Pros and Cons
Now that you know how Groundfloor works a bit and the loan types, you’ll want to know about the pros and cons of the platform.
There is quite a few positives compared to other real estate crowdfunding platforms, but is also behind in a few other areas too.
Pros of Groundfloor
- Both accredited and non-accredited investors are welcome to the private real estate investments
- Lowest minimum investment out of all the platforms. You only need $10 to begin investing in their loans.
- Various account options to invest with like standard investment account, as well as the standard IRA, Roth IRA, SEP IRA, Simple IRA, and Rollover IRA. They previously had a private IPO where you can invest in shares of the company and may open that back up again.
- Very easy to get started with a few simple clicks. You can also open an account to see loans without investing money right away.
- In-depth screening of investments. Groundfloor has to ensure the deals are favorable to their investors, so they review all loans carefully.
- Ability to diversify in multiple loan types. Generally each week, Groundfloor is releasing new loans you can invest in. This way you can diversify in various grades of loans.
- No fees. There are no fees paid by investors, either to use the Groundfloor platform, or in connection with investments.
Another nice thing about Groundfloor is their referral program. After you’ve signed up, you will get a referral link that you can refer your friends and family to join.
When the person you’ve referred transfers money into their account, you’ll each earn a $10 bonus. Score!
Just share your referral link and when they sign up using that link you’ll both get $10. You can then use that referral cash towards your investments or cash it out.
Cons of Groundfloor
- No dividends. Unlike other real estate platforms, Groundfloor does not pay out monthly, quarterly, or yearly dividends. Both income and invested principal are returned as each loan is repaid back to Groundfloor.
- Very limited liquidity. While investing in real estate is illiquid, Groundfloor has no option to withdraw from an investment early. While they do have short term loans, you do need to remain invested until the loan is paid back, which can be up to 12 months or more.
- Loan default possible. The risks of the loans are marked and it’s possible that some of the higher interest loans may default. Meaning a project can go wrong and your money potentially only get your investment back without interest.
What Tax Documents Can I Expect to Receive?
As you know, any investments you have will require you to report during your taxes.
Groundfloor makes it easy by getting you the proper forms you need for the previous tax year. There are two potential tax forms you’ll receive.
If you have earned more than $10 in promotional and interest income from your Groundfloor investments in a calendar year, you will be issued a single, yearly 1099-INT form.
You’ll get his form by January 31st of the following year in accordance with regulations set forth by the Internal Revenue Service.
Any principal losses are reported separately on a form 1099-B per property. All tax documents will be available and accessible via the Groundfloor Tax Center.
If you have additional questions regarding the tax forms and your personal tax requirements, you can reach out to the Groundfloor team and consult with a tax expert and/or your accountant.
Is Groundfloor a Good Investment?
What makes Groundfloor interesting is there is no other real estate platform currently doing this model. Which means a low entry barrier fee to get started, a chance to learn the ropes, and diversify your investments.
The downside is this model is still relatively new, it’s hard to say how successful this will be in the long-term.
But like any investment, you want to do your own due diligence and ensure you are not risking all your money. Take a small percentage and slowly build on that.
Additionally, I recommend diversifying your loan grades to limit your risk and maximize your returns.
Groundfloor is showing a lot of promise over the last few years and is proving to be a good investment option to improve your portfolio. So far they have repaid over $50 million to investors and have resulted in 5-20%+ returns.
I give this real estate platform an 8/10 and will adjust accordingly over time as new information and features become available.